Haier's Q4 Has Net Leaps But Tough Outlook
Mar 26, 2004
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The listed arm of Chinese appliance giant Haier (Shanghai, China) posted a 40-percent jump in fourth-quarter net profit, shaking off a price war to ride a consumption boom in the world's fastest growing major economy.

But Haier, which sells about half of its appliances overseas through retailers such as Arkansas, U.S.-based Wal-Mart Stores, is expected to report flat profits at best in 2004 as margins are squeezed by high steel costs and a price war at home caused by overcapacity.

Analysts warned that a tooth-and-nail battle for market share that began in the late 1990s would rage on, even as increasingly affluent consumers snap up appliances in an economy growing at more than 9 percent a year.

"Their margins are going to slide," said Jing Bin, an analyst with Guotai Junan Securities in Shanghai, China. "I don't see any end to the fierce competition yet."

Qingdao Haier, a unit of the world's number five maker of white goods, posted earnings of 75.32 million yuan (approx. $9.10 million) versus 53.91 million yuan a year ago, calculated from previously reported figures and in results published on the Shanghai stock exchange's Web site.

A Reuters poll of three analysts found a median earnings forecast of 67 million yuan in the final quarter for the nation's leading maker of refrigerators and air-conditioners, though forecasts ranged from 6 million yuan to 80 million yuan.

For the full year, Haier net earnings slipped seven percent to 368.95 million yuan, the second straight year that net earnings have fallen. Turnover edged up to 11.69 billion yuan.

Analysts reckon 2004 will be the third straight year of decline. Mr. Jing of Guotai expects the company to earn 350 million yuan this year.

Haier is the first major player to report results and is seen as a good barometer for the overall industry, which includes players such as Guangdong Kelon Electrical Holdings.

China's largest appliance maker boasted a margin of 19.2 percent on fridges in 2003 and 12.4 percent on air-cons, higher than many domestic rivals and outperforming the appliance arms of South Korean rivals LG on 5.6 percent and Samsung Electronics, which made a loss last year.

But that still lags the 20 percent for the appliance arm of Europe's Philips Electronics NV. "They're aggressively chasing large contracts and courting chain retail stores. That's going to pressure margins this year," Mr. Jing said.

In the U.S., Haier controls 26.2 percent of the refrigerator market and 16.6 percent of the air-conditioning market. (Reuters)

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